Increasing your 401(k) withholding involves contributing a higher percentage of your salary or a larger dollar amount to your employer-sponsored 401(k) retirement account. This can be an effective way to boost your retirement savings over time. Here’s how to do it:
Review Your Current Contribution:
Check your most recent paystub or log in to your employer’s retirement plan portal to find out your current 401(k) contribution percentage or dollar amount.
Assess Your Financial Situation:
Evaluate your current financial situation and budget. Ensure that you have the financial flexibility to increase your contributions without causing financial strain. Consider your short-term financial needs and long-term retirement goals.
Determine the Increase Amount:
Decide how much you want to increase your 401(k) withholding. Common guidelines recommend contributing at least 10-15% of your salary to retirement savings, but the exact amount will depend on your objectives.
Be Aware of Contribution Limits:
Check the annual contribution limits set by the IRS for 401(k) accounts. As of 2023, the limit is $20,500 for individuals under 50 and $27,000 for those aged 50 and older (including catch-up contributions). Ensure that your increase doesn’t exceed these limits.
Contact Your HR or Payroll Department:
Reach out to your employer’s HR or payroll department to initiate the change in your 401(k) withholding. They can provide you with the necessary forms or instructions for adjusting your contributions.
Complete Required Paperwork:
Fill out any required paperwork or forms to change your 401(k) contribution amount. You may need to specify the new percentage or dollar amount you want to contribute from each paycheck.
Specify the Start Date:
Determine when you want the increase to take effect. This could be with your next paycheck or at a specific date in the future, depending on your preference and your employer’s policies.
Monitor Your Paycheck:
After making the change, closely review your subsequent paychecks to ensure that the new contribution amount is being deducted correctly and that there are no errors.
Reevaluate Periodically:
Periodically reassess your financial situation and retirement goals. If you receive raises, bonuses, or experience changes in your financial circumstances, consider increasing your 401(k) withholding further to continue building your retirement savings.
Leverage Employer Matching:
If your employer offers a 401(k) match, aim to contribute enough to maximize this benefit. Employer matches represent free money that can significantly enhance your retirement savings.
Increasing your 401(k) withholding is a proactive step toward building a more secure financial future in retirement. By saving consistently and taking advantage of the tax benefits and potential employer contributions offered through a 401(k) plan, you can steadily grow your retirement nest egg. If you have specific questions about your retirement plan or contributions, don’t hesitate to reach out to your HR department or consult with Matthew Jennings, JD, MBA, EA, RFC®, CEP®, CES™, aka Tax King Matt for personalized guidance.